Trump Backing Off Mexico Border Threats Eases Some US Commercial Property Owner Concerns

Trump Backing Off Mexico Border Threats Eases Some US Commercial Property Owner Concerns

Users of Real Estate for Handling Imports May Face Less Risk After Remarks

BY LOU HIRSH  (via CoStar Group)

U.S. Customs and Border Protection officials temporarily suspended some operations at the San Ysidro port of entry in San Diego last year. Photo: U.S. Customs and Border Protection

U.S. Customs and Border Protection officials temporarily suspended some operations at the San Ysidro port of entry in San Diego last year. Photo: U.S. Customs and Border Protection.

The Trump Administration has begun backing off of threats to immediately shut the U.S.-Mexico border over immigration issues, easing some concern within facilities south of Los Angeles that ship cars, electronics and produce for companies that are large owners and users of commercial real estate.

The region had been anticipating the possible closings and layoffs at manufacturing plants, warehouses and other distribution points as part of the initial effects of a border closing this week, a decision President Donald Trump said he was considering as part of his high-profile fight against illegal immigration at the southern border.

Instead, Trump Thursday told reporters he plans to put off closing the border for one year in favor of enacting auto tariffs as leverage to gain Mexico’s help to stem the flow of drugs and migrants traveling to the United States.

“If that doesn’t work, we’re going to close the border,” he said.

Robert Showghi, a business professor at San Diego State University, calculated that the national impact from a complete shutdown of the border could mount immediately at a rate of around $1 million per minute, based on the halting of the more than $565 billion in goods traded annually between the United States and Mexico.

“You would see some of the first impacts near the border, but it won’t take very long before you see the them in other parts of California,” said Showghi, a lecturer and adjunct professor whose focus includes management issues such as supply logistics. “You would probably start to see facility closings nationwide within one or two days after a border shutdown.”

The last time such political tensions flared, in November 2018, the measurable impacts were limited in time and geography, but still deep. In San Diego’s border adjacent community of San Ysidro, a weekend closing at the San Ysidro Port of Entry that lasted just over five hours caused businesses in that community to lose more than $5.3 million in retail sales.

“If you get a day or two of closures, then there are a lot of businesses that won’t make it,” Jason Wells, executive director of the San Ysidro Chamber of Commerce, recently told a local TV station.

While the most recent possibility of a border shutdown seems to have passed for now, the simple uncertainty of it all is having lasting effects.

Tenant Concerns

In November, local industrial brokers noted that political uncertainties at the border were already emerging among tenants and owners, related to the fate of trade accords between the U.S. and Mexico. Border-area traffic shutdowns could add to those uncertainties, as potential tenants wonder whether they will be able to efficiently move goods between manufacturing sites in Mexico and distribution sites in the United States.

“Companies now are trying to compete globally and efficiently, and they are very lean on inventories,” said SDSU’s Showghi, noting many industries depend on “just in time” systems where parts and finished products are no longer being stockpiled in advance.

At stake for the San Diego region is the fate of a cross-border economy that accounts for $24.3 billion in annual foreign exports and 418,300 manufacturing jobs, according to a 2018 report from the San Diego Regional Economic Development Corp.

While San Ysidro is the world’s busiest land port, with 14 million vehicles and 33 million pedestrians crossing annually between San Diego and Tijuana, only passenger vehicles are allowed to come through. But that port of entry is also where thousands of Mexican residents commute daily into San Diego to work at jobs in the region’s crucial hospitality, tourism and manufacturing industries, and also attend classes at area colleges and universities.

The local region’s major port of entry for commercial cargo is located a few miles to the east, at Otay Mesa, and it is among the nation’s busiest for the transport of fresh produce, industrial parts and other commercial goods between the U.S. and Mexico.

Analysts have already predicted severe shortages, for example, of fresh avocados and bananas in the event of a border closing, disrupting in turn the demand for U.S. logistics facilities where those goods are packaged and distributed.

According to state and federal data, the Otay Mesa land port had nearly 8.7 million vehicles cross north from Mexico into the United States in 2016, up 11 percent from the prior year, and nearly 900,000 of those vehicles were commercial trucks, up 8.4 percent.

The U.S. Chamber of Commerce recently said that in addition to San Diego, the cities hardest hit by a full border shutdown would include the Texas cities of Brownsville, McAllen, Laredo and El Paso. According to the Laredo Chamber of commerce, an average of 16,000 trucks and 1,400 rail cars cross that city’s border daily, and the U.S. chamber said the Port of Laredo land crossing alone handled more than 50 percent of U.S-Mexico bilateral goods traded in 2017.

Effects could ripple nationwide at supply chain facilities serving industries ranging from auto manufacturing and electronics to medical devices and fresh produce distribution. Job cuts, closings and space-usage pullbacks could mount particularly at sites – far to the north and east of San Diego — that depend on the arrival of certain parts from other plants located south of the border – an especially significant issue for the auto industry.

All of the potential resulting national effects on consumers – higher prices for groceries and other essentials, less money left to spend on discretionary items like tech gadgets – could in turn disrupt the overall strength seen in the U.S. industrial property sector over the past half-decade.

The U.S. Chamber estimated that 5 million American jobs depend on trade with Mexico.

“From an economic standpoint, closing our doors to the $1.7 billion in daily goods trade with Mexico would be an unforced error that would inflict lasting damage on U.S. markets and economic growth,” said a statement from U.S. chamber executives Neil Herrington and Jon Baselice.